5 months ago
84 ARTICLE AD
James Khatiblou, the owner and CEO of Onyx Motorbikes, was watching his e-bike startup fall apart.
Onyx was being evicted from its warehouse in El Segundo, Los Angeles. The company’s unpaid bills were stacking up. His chief operating officer had abruptly resigned. A shipment of around 100 CTY2 dirt bikes from Chinese supplier Suzhou Jindao was delayed, and customers were starting to demand refunds – a major problem considering Khatiblou already owed both lenders and shareholders a lot of money.
Khatiblou, known for his warm and outgoing personality, was fearful and stressed, according to interviews with people who worked alongside him. In the waning months of 2023, he was so distracted by the startup’s increasing debt and legal problems, he was unable to follow through on basic tasks. At the same time, his health was deteriorating, according to his mother, Diane Khatiblou. The vibrant and active man with the toothy smile was having trouble breathing and even walking, she said.
Then Onyx’s problems escalated in a way nobody expected.
At 37 years old, Khatiblou – who loved riding the halfpipe at the company warehouse and traveling the world – died unexpectedly. The Los Angeles County Coroner’s Office determined Khatiblou suffered a pulmonary embolism, listing deep vein thrombosis as a secondary cause.
His death on December 12, 2023 added a new layer of uncertainty to the future of Onyx and its assets.
Khatiblou left behind no will and no succession plan — only millions of dollars in debt and questions from staff, creditors and customers about how to proceed when the sole owner of a company dies.
Today, no one owns Onyx Motorbikes, which means all operations – customer deliveries, payments to suppliers and creditors – have ground to a halt. Oxygen Funding, an Orange County-based creditor to which Onyx owes around $2.2 million, is petitioning the Los Angeles County probate court to become the administrator of Khatiblou’s estate.
“[Onyx] had such good prospects. It had such a loyal fan base and such a good product, and it was all just basically put in limbo the day James passed away,” Adam Lomax, chief executive officer of Oxygen Funding, told TechCrunch. “And it has remained in limbo all the way up to the point where we are now.”
As administrator, Oxygen could help put some pieces together. But numerous legal wrinkles threaten to derail those plans.
A battle between Oxygen Funding, two former shareholders and Onyx’s Chinese parts supplier is now raging over who controls Onyx’s remaining assets – bikes, chargers and batteries – and who gets to be made whole first.
Based on interviews with creditors, lawyers and multiple former employees at Onyx, the company’s story highlights how complicated things can become if the sole owner of a business doesn’t make a plan for what happens when they die.
A life changed by $1
Khatiblou didn’t create Onyx Motorbikes. Its founder is Tim Seward, who is now VP of product and design at e-bike company Ubco, and who initially just wanted to make a cool electric moped to impress his friends.
“I grew up loving Volkswagens and vintage cars and motorcycles,” Seward told TechCrunch. “I loved that style and wanted to make an electric moped version of that.”
Seward started building out what would become the prototype for Onyx’s popular RCR electric dirt bike in 2016 while a designer at LG Electronics, where he worked alongside Khatiblou.
“The look of the bike is actually an eagle with its wings folded together as it dive bombs,” Seward told TechCrunch. “The two side panels are the wings. The wood part is kind of the body or the torso, and the seat would be the tail of the eagle.”
As Seward drove his bike around San Francisco, people kept stopping him to ask where they could get one. After saying, ‘It’s not for sale,’ enough times, Seward finally decided that maybe it should be.
He launched an Indiegogo campaign for Onyx Motorbikes in 2018, raising nearly $1 million. Onyx promised to deliver American-made bikes, which Seward said would help the company maintain better quality control, create local jobs, and avoid import tariffs.
Image Credits: Tim Seward
The bikes were an instant hit. People loved the 1970s and 1980s appeal of the design, the wooden body, the made-in-the-USA-style. And, most importantly, the bikes could shred.
Seward hired out a team of technicians to help him fulfill his growing order count. Khatiblou, who lived near Onyx’s San Francisco shop, would often come in after his new day job at Amazon to blow off steam. He even built his own Onyx bike after buying one on Indiegogo, said Seward, who shared a video that showed Khatiblou’s excitement for his new toy.
By early 2019, Seward was getting burned out with the responsibilities of running a business. He wanted to focus on designing and building bikes, not deal with purchasing agreements and payroll. He started shopping for a merger.
What he ended up getting was an acqui-hire deal from Bird, the struggling shared e-scooter company. Instead of acquiring Onyx and its assets, Bird paid Seward a lump sum in the hundreds of thousands to come and work for them full time. As part of the deal, Seward had to find a replacement for himself at Onyx. He ended up landing on Khatiblou, who had offered to quit his Amazon job and step up into the CEO role.
Eager to offload the business responsibilities of Onyx, Seward sold Khatiblou his company in May 2019 for $1.
“My tax advisor had said to do that to avoid paying taxes, or something like that, but also James didn’t have a lot of money at the time,” said Seward. “Mainly, it was because of what Bird was offering me, which more than supplemented what I thought I should have been paid for the company.”
Khatiblou stumbled a bit when he took over the business, says Seward. After all, he had never run a company or dealt with e-commerce before. But it was clear he was dedicated to running Onyx and getting cool bikes into the hands of loyal customers.
“He lived and breathed Onyx,” Diane Khatiblou told TechCrunch. “It was everything to him, and he put everything into it.”
While Seward had no official ties or claims to Onyx at this point, he continued to advise Khatiblou as a friend and to produce content for Onyx’s social media. That relationship continued until the two fell out over a dispute regarding new shareholders Khatiblou took on.
Per Seward’s retelling, Khatiblou had decided to bring on backers who would invest millions in the business. Despite the potential financial upside of the arrangement, Khatiblou wouldn’t stop complaining about how the deal would reduce his ownership in Onyx. Seward – frustrated by his friend’s doubts – took a step back from Khatiblou and Onyx, doubling down on his work at Bird building new e-scooter and e-bike models.
A web of legal and financial troubles
As a first-time business owner navigating the suddenly hot e-bike space, Khatiblou made some mistakes. He signed himself as the personal guarantor for lending agreements; and he overspent on supply and accounting costs. And even toward the end, as the business spiraled, Khatiblou turned down what could have been a lifeline: a buyout offer from a competitor.
He also mismanaged the relationship with his two shareholders, who bought into the business and would eventually sue him: Kenneth Ames, a former engineering and sourcing executive in the LED lighting business based in Simi Valley, and Troy Smith, a self-employed accountant based in Carlsbad.
In September 2019, through a “shareholders agreement,” Ames purchased 2.2 million shares of common stock in Onyx Corp., and Smith bought 800,000, leaving Khatiblou the remaining 5 million shares. TechCrunch was unable to learn the original dollar amount of these equity investments. Under an “operating agreement,” Ames and Smith also collectively held a 37.5% percentage interest in Onyx LLC.
Onyx filed as a corporation in California and Delaware in 2018. The separate LLC entity was set up in California a year later, when Ames and Smith came onboard. Typically, a company will set up a corporation in addition to an LLC to isolate liabilities, for more flexible tax planning, to customize ownership structure, or to protect assets listed under the LLC.
TechCrunch was unable to obtain a copy of Onyx LLC’s operating agreements with Ames and Smith, which might have given the shareholders the authority to participate in day-to-day management and operation of the business.
Image Credits: Tim Seward
The two did not respond to repeated requests from TechCrunch for more information, but it appears they did have a hand in company affairs — at least, in the beginning. Seward told TechCrunch that, while he wasn’t aware of Smith at the time, he had met Ames and thought he was “a good guy.”
“He was smart and knew business and that’s what Onyx needed,” said Seward, noting that Ames helped enhance the manufacturing process he had started. “From my perspective, he was making Onyx healthy.”
A month after signing the operating agreement, Khatiblou signed a trademark assignment agreement, transferring ownership of Onyx’s branding from Onyx Corp. to Onyx LLC.
Khatiblou couldn’t shake his mistrust of his new business partners, however, according to the accounts of people close to him at the time. Less than a year after Ames and Smith had become shareholders, Khatiblou took action to take away their decision-making powers. In August 2020 and December 2020, Khatiblou unilaterally removed Ames and Smith, respectively, as officers, directors and managers of the Onyx companies.
Around the same time, Oxygen Funding, an invoice factoring company that provides cash flows to small- and medium-size businesses, entered the picture. Khatiblou and Oxygen signed a trade payables agreement in December 2020. Under the agreement, which TechCrunch has viewed, Oxygen purchases bikes and parts directly from suppliers and vendors on behalf of the e-bike company, and Onyx pays it back plus various fees.
Per the terms of the agreement, Onyx’s supplies and assets would be held as collateral. Khatiblou was personally liable if Onyx failed to make payments.
Will Drewery, founder and CEO of Diagon.ai, a startup building a platform for equipment financing, told TechCrunch that creditors’ fees are pretty standard in the industry. Signing on as a personal guarantor, however, is not.
“It’s legal to do it, but it’s dumb,” Drewery told TechCrunch. “And places like Y Combinator, Techstars, any advisor or investor will tell you, like, ‘Are you an idiot? Why would you sign a personal guarantee? Don’t ever do that.’”
Clara Brenner, co-founder and managing partner of VC firm Urban Innovation Fund, had a similar sentiment.
“Personal liability… is something you actively run from,” Brenner told TechCrunch. “It’s something we strongly dissuade our founders from doing because most of the time they’re not super sophisticated about these mechanisms, and it’s just really risky.”
Oxygen Funding’s Lomax, for his part, said making the borrower a personal guarantor is standard protocol when a business doesn’t have enough assets to back up the credit line.
But now that Khatiblou has passed away, all Oxygen and other creditors can fall back on is whatever e-bike supply remains. Oxygen and Ames, together with Smith, are now duking it out for access to those assets.
The CEO was slipping
Days before Khatiblou died, Mig Cernicky, Onyx’s purchasing director, said his CEO was slipping.
“Several of us were working closely with James to try to get him on the ball…and take care of these eviction notices,” Cernicky told TechCrunch. “At that point, his mental capacity had declined to the point that he was having a hard time even carrying on a simple conversation.”
Diane Khatiblou told TechCrunch that in addition to stress, her son was also in and out of the hospital and was “very ill for a couple of months before he died.” He was initially diagnosed with pneumonia. It turns out that it was a blood clot that caused Khatiblou trouble breathing and difficulty walking to the point that he started using a cane, according to Diane Khatiblou.
“I didn’t realize how much pain he was in because, of course, he was trying to pull himself up and not complain,” she said.
Realizing that Khatiblou wasn’t in a fit state to handle the pressing matters at hand, Cernicky said he started pressuring Onyx’s COO, Tay McDaniel, to step up – to which she replied with a resignation letter.
Image Credits: Tim Seward
At a loss for what to do and desperate to try to save Onyx, Cernicky drafted a document on December 8 naming himself as president and COO of Onyx Motorbikes for Khatiblou to sign.
“It is the last document that James signed,” said Cernicky.
Khatiblou died four days later, and Cernicky stepped in as acting CEO to try to keep Onyx alive.
Khatiblou was unmarried and had no children when he passed away, so his mother, Diane Khatiblou, became his sole heir.
That didn’t mean she was automatically in charge of Khatiblou’s assets, which includes Onyx — only that she had first rights to them. According to the California Probate Code, in cases like this, the court needs to appoint an administrator to decide what to do with the company. After initially petitioning a Los Angeles probate court in March 2024 to step in as administrator of her son’s estate, Khatiblou’s mother reversed course and withdrew her petition.
Now, Oxygen Funding is petitioning the court to become the administrator, its chief executive Lomax told TechCrunch. That’s one way for the creditor to ensure that it gets its money back. Lomax wouldn’t confirm whether Oxygen would sell company assets to pay itself and other creditors back or find someone else to pick up the pieces and keep the company alive.
Creditors become secured creditors when they file a Uniform Commercial Code (UCC) form. Oxygen filed one of these with Delaware’s Secretary of State in December 2020, which the creditor says makes it first in line to be paid back its $2.2 million. There are other creditors waiting in line too. JP Morgan Chase claims to be owed $43,323.29, according to probate court documents. In mid-May, a customer who had purchased an RCR dirt bike and some accessories back in November 2023 also filed as a creditor in probate court to get his $6,019.97 back. Sources say Shopify, the platform under which Onyx made its sales, is also owed money but has yet to file a claim.
Ames and Smith are also claiming to be creditors. The pair filed UCC forms in California for both Onyx Motorbikes Inc. and Onyx Motorbikes Global Holdings LLC on May 26, 2021 – the day after Khatiblou signed a settlement agreement that would see him buying back their shares for some $10,000 per month over the span of 80 months.
By filing those UCC forms, Ames and Smith essentially turned a share buyback into a loan agreement – and they are holding Onyx’s assets, “tangible and intangible,” as collateral against their security interests.
Counsel for Ames and Smith told TechCrunch that Onyx had breached its repayment agreement when Khatiblou passed away and could no longer continue buying back shares.
“Accordingly, Mr. Ames and Mr. Smith, as secured creditors, are taking steps to foreclose on Onyx LLC’s assets,” reads a statement from the lawyer.
The two shareholders earlier this month gave notice of a lien sale to Khatiblou’s estate and acting CEO Cernicky, according to several people familiar with the matter.
The notice advises that Ames and Smith plan to sell Onyx LLC’s collateral sometime on or after May 21. In the notice, collateral is defined as a general all-assets description. At the time of publication, none of Onyx’s disputed assets had been sold.
In addition to Ames and Smith, their counsel did not respond to TechCrunch’s requests for more information, like what assets they have in their possession and plan to sell.
E-bikes stuck in storage
Since there’s no money in Onyx’s coffers, the only way for Oxygen or anyone else to be made whole is to sell whatever assets and supplies remain. Oxygen posits that since it paid for Onyx’s supply and since the e-bike company defaulted on its payments, it is the rightful owner of any remaining assets.
There’s just one problem. Those assets are being held split between at least two parties.
Oxygen is in possession of about 100 batteries and chargers as well as 25 CTY bikes, confirmed Lomax. The remaining 74 bikes are in a warehouse used by Suzhou Jindao, the e-bike assembly manufacturer in Suzhou that was Onyx’s supplier. Suzhou Jindao is waiting for a court order that directs where the inventory should go.
The Chinese supplier has also been pressured by Ames and Smith to hold onto the bikes and ensure they don’t make it into Oxygen’s hands. In an email that TechCrunch has viewed, counsel for the two investors asked the supplier to hold off on delivering the bikes “in light of the liens held by Troy Smith and Ken Ames.”
With assets split between two parties and a web of legal claims, it’s unclear exactly who will be the victor — or if Onyx will ever exist again.
There are several possibilities. Ames and Smith could use the trademark assignment to block Oxygen and others from selling Onyx-branded gear. The pair could use the tactic to not only wrest control of the assets but as a strategy to bring the Onyx brand back.
To make matters more tricky, Ames and Smith – who claim to be creditors per the share buyback agreement – now appear to have regained full ownership of their shares, making them active shareholders. This is because their shares were being held in escrow while Onyx was paying them back; when Khatiblou died and Onyx defaulted on payments, those shares moved out of escrow, which Smith has confirmed to TechCrunch.
“Either you’re an owner or you’re not an owner,” said Lomax. “Which is it? Because if you’re an owner, then we need to talk to you about how Oxygen Funding gets repaid.”
